George Osborne election budget: North Sea oil needs bold tax breaks

There is a shortage of buyers willing to invest in the beleaguered North Sea oil and gas industry, prompting calls for the government to announce remedial tax incentives in the forthcoming budget statement.

Reuters collated data from Oil and Gas UK and oil and gas consultancy 1Derrick and other analysts to reveal that over £5bn (€7bn, $7.4bn) worth of oil and gas fields are languishing without investment, and about £25bn worth of North Sea projects have still to get the go-ahead from company boards.

Big energy players are looking to less mature fields in emerging market countries in Asia or Latin America, with potentially more attractive financial gains. There is a risk that exploration will dwindle in the North Sea and existing fields will be decommissioned early if tax boosts are not forthcoming.

Tax experts say the chancellor is likely to announce the introduction of an investment allowance that will reduce the capital expenditure tax rate, a proposal the Treasury put forward last autumn, Reuters reported.

Some areas of the industry have called for supplementary charge on oil producers' profits to be dropped; other recommendations have called for it to be cut to the 2011 level of 20%, from the existing 30%.

The number of oil wells drilled in the British part of the North Sea fell to the lowest level in 15 years last year, according to data from Deloitte's Petroleum Services Group.

Analysts pointed out that there were costs associated with decommissioning, but that as oil prices have dropped it has become an issue that must be addressed; the decommissioning of older assets is no longer 20 years away, but more like five years in the future.